Otter Tail Corporation

About Otter Tail Corporation

Like the broad end of its furry namesake, Otter Tail covers a swath of businesses, from electric services and construction to manufacturing equipment and plastics. The electric utility (Otter Tail Power Corporation) is the company's core business; it keeps the lights on for more than 129,000 residential, commercial, and industrial customers in Minnesota and the Dakotas. The company also makes PVC pipes (Northern Pipe Products, and Vinyltech Corporation), manufactures parts and trays (BTD Manufacturing and T.O. Plastics), and provides construction services (Foley Company and Aevenia).

Geographic Reach

Otter Tail and its subsidiaries conduct business primarily in the US, Canada, and Mexico.

Operations

The conglomerate's businesses are divided into four major segments: Construction, Electric, Manufacturing, and Plastics. (Its Wind Energy, segment was sold in 2012). Electric accounted for 41% of the company's 2012 revenues; Manufacturing, 24%.

Financial Performance

Otter Tail’s revenues dropped by 20% in 2012 to $859 million as the result of selling its Wind Energy segment (DMI Industries) in 2012. Revenue increases in Plastics, Manufacturing, and Electric, offset by a decrease in revenues from Construction helped its continuing operations' sales rise by 2% in 2012.

The company has been experiencing losses since 2010, due to lower revenues and losses from discontinued operations.

Otter Tail plans to spend $846 million for the years 2012 through 2016 to upgrade its power generation and transmission infrastructure.

Strategy

Over the past 20 some years, Otter Tail has increased both its plant capacity, as well as its outside holdings, by acquiring nearly a dozen businesses. To maximize its bottom line, Otter Tail invested in its electric utility business, which delivers the company's core revenue stream, in tandem with expanding its other businesses' products and services, and customer base to generate a diverse stream of top line growth. However, it has been selling a number of these businesses in recent years in order to reinvest in fewer segments and pay down debt.

Otter Tail's strategy is very much constrained by trends in the larger economy. For instance, Otter Tail's wind tower manufacturer, DMI Industries, was regarded as one of the largest wind tower manufacturers in the US. However, a sluggish economy, and cancellations and delays of major wind power projects forced DMI to slash its workforce by some 20%. In 2012, to raise cash, Otter Tail sold DMI to Trinity Industries for $20 million and exited the wind power business. In 2013 it sold waterfront equipment manufacturer ShoreMaster for $13 million.

In 2012 Otter Tail sold its DMS Health Technologies unit for about $24.1 million, and Aviva Sports and used the proceeds to pay down debt.

In 2011 the company sold Idaho Pacific Holdings, its Food Ingredient Processing business, and E.W. Wylie Corporation (Wylie), its trucking company headquartered in West Fargo, North Dakota, which was included in its Wind Energy segment.

Otter Tail's outlook for investments in its Electric segment, however, are positive, and the company is looking for that segment to become an even larger part of its growth strategy and account for 75% to 85% of overall earnings.